Low-Cost Regions Make No Economic Sense

The head of research of CBRE has advised states and cities not to promote their investment attractiveness by telling how cheap they are to do business in, Spencer Levy told the same to a number of clients and brokers during his visit to Phoenix during the first week of February. The commercial real estate firm has set up a brand new office at Phoenix's Esplanade development.

Cheap is not better

Levy's words are important. Phoenix as a city has for a long time advertised itself as a low-cost venue for a number of industries. The city competes with Pacific Northwest and also California for business investment and also for jobs. The head of research said that many US cities like Midwest and also East Coast industrial metropolises must discard such a cheap mentality to compete with expensive markets like San Francisco, New York, and Los Angeles. The CBRE official said that being cheap means being a loser.

One challenge is- there will always be places which will be cheaper. The state can also offer larger amounts of subsidies. Example of these includes Nevada, Texas, and Florida. These are states sans income taxes due to their large revenues from casinos, tourism, and energy. In case of manufacturing, American companies cannot hope to compete with China and Mexico on costs. The only way the US companies can make a profit in such hostile conditions is to outsource work to Malaysia or India. The Phoenix call centers can be sent to the Philippines where costs are much lower. However, for companies and jobs which want to grow in the longer term, and attract the best talent, the keys to greatness are innovation and talent.

Cost does not matter

Levy said that visionary companies do not care much about cost. This is the reason why Google, Apple, and Facebook continue to be in Silicon Valley. The companies have created an ecosystem of top-notch financial, technological, and creative companies. These companies have a presence in real estate markets like Santa Monica, San Francisco, and Manhattan. It follows that if Phoenix wants to join the equal development bandwagon like these cities, then it must concentrate less on costs.

Levy is happy with the academic output and quality of students from Arizona State University. He has also expressed admiration about Tempe. The CBRE rankings listed the latter as its best submarket in the US in the company's Tech 30 report in 2017.

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